FINE 2000 Lecture Notes - Lecture 8: Net Present Value, Given Up, European Cooperation In Science And Technology

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bluescorpion455

19 Apr 2016

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Opportunity cost of capital it is the rate of return on comparable alternative. Investments that has been given up in order to invest in a project. Net present value (npv) it is the present value of cash flows minus initial investments. Net present value rule: the rule states that managers increase shareholder"s wealth by. Investing in projects that are worth more than they cost i. e. The npv rule works for any length of investments. The present value is desgined to allow investors to know how much they would receive. The value of future cash flows in capital. Calculating the npv of investments require two steps which are: estimating the future cash flows from an investment and, estimating the opportunity cost of capital. Once it is done calcuating the npv is easy and simple. Mutually exclusive two or multiple projects that cannot be pursued simultaneously. In that case, calculate the npv of each of the investments and choose the one with.

Related Questions

Net Present Value Versus Internal Rate of Return

For discount factors use Exhibit 14B-1 and Exhibit 14B-2.

Skiba Company is thinking about two different modifications to its current manufacturing process. The after-tax cash flows associated with the two investments follow:

Year	Project I	Project II
0	$(100,000)	$(100,000)
1	â	63,857
2	134,560	63,857

Skiba's cost of capital is 16%.

Required:

1. Compute the NPV and the IRR for each investment. Round present value calculations and your final NPV answers to the nearest dollar. Round IRR answers to the nearest whole percent.

	NPV	IRR
Project I	$	%
Project II	$	%

2. Conceptual Connection: Why the project with the larger NPV is the correct choice for Skiba.

coffeewalrus402

Integrative- Multiple IRRS Froogle enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table

Year Cash flow

0 $170,000

1 -$782,000

2 $1,344,700

3 -$1,024,420

4 291,720

A) why is difficult to calculate the payback period for this project?

B) Calculate the investments net present value at each of the following discount rate0%, 5%, 10%, 15%, 30%,35%.

C.) What does your answer to part b tell you about this projectâs IRR?

D) Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%?

E) in general, when faced with a project like this, how should a firm decide whether to invest in the project or reject it?

A. Why is difficult to calculate the payback period for this project?

__A) the huge amount of ash outflow in year 3 makes the calculation difficult

___B) the short life of the project makes it difficult to compute the payback period

____C) it is unreal for a project to have a cash inflow as an initial investment

___D) the oscillating cash flows make it difficult to compute the payback period

B) IF the discount rate is 0%, the investments NPV $______

IF the discount rate is 5%, the investments NPV $______

IF the discount rate is 10%, the investments NPV $______

IF the discount rate is 15%, the investments NPV $______

IF the discount rate is 20%, the investments NPV $______

IF the discount rate is 25%, the investments NPV $______

IF the discount rate is 30%, the investments NPV $______

IF the discount rate is 35%, the investments NPV $______

C) what does your answer to part b tell you about this projects IRR?

___A) there are multiple IRRs for this Project

___B) thee are infinite IRRs for this project

___C) there is no IRR for such cash Flows

___D) There is only one IRR for this project

D) should Froogle invest in this project if its cost of capital is 5%

Yes or No

should Froogle invest in this project if its cost of capital is 15%

yes or no

E) in general when faced with a project like this, how should a firm decide whether to invest in the project or reject it.

----A. it is best to use the NPV method

----B. it is best to use the IRR method

-----C it is best to use the payback period method

----D none of the methods is suitable

limeeagle576

Problem 5

NPV Calculate the net present value (NPV) for a 15 year project with an initial investment of $40,000 and a cash inflow of $7000 per year. Assume that the firm has an opportunity cost of 15%. Comment on the acceptability of the project

The project net present Values $____

Is the project acceptable

Yes or no

plumchimpanzee131

FINE 2000 Lecture Notes - Lecture 8: Net Present Value, Given Up, European Cooperation In Science And Technology

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